I’ve been getting entries in the “Lean Challenge” contest and read about this challenge online. We all talk about how lean shouldn’t drive layoffs. But what happens when you free up head count and can’t “grow your way out of the problem?” It’s ideal to grow the business, so you can produce more or do more with the same number of people, rather than feeling pressure to reduce headcount. Using lean to drive layoffs will destroy morale and people’s attitudes about lean — you can’t get people’s ideas and improvement suggestions if they fear for their jobs.

For Sturm, Ruger, Inc (maker of Ruger firearms):

In addition, the move to lean manufacturing practices during the past year has meant that increases in productivity have outpaced increases in consumer demand, Sullivan said

“We had to address that,” he said.

If too few employees accept a buyout, Sullivan said the company would let natural attrition and a hiring freeze (in place since August) take care of the reduction in workers.

“We have no need or intention or desire to do anything like a layoff,” Sullivan said. “We’re not going to do that.”

You have to hope that companies can at least be somewhat fair to people if attrition isn’t fast enough to get headcount down. I often criticize companies for laying off people as a result of their lean efforts. Giving people a fair buyout or an early retirement is something I won’t criticize.

I’m happy to see they are giving up their piece rate pay system:

Also on Friday, the company announced that it would be abandoning its current piece-work pay system in favor of hourly wages, another lean-manufacturing driven move, Sullivan said.

He said that the company is moving away from island-based production, in which machines that performed the same task were clumped together, to cellular production, in which machines are grouped so that a piece is brought from raw material to finished product in a single area.

Those cells require employees to be flexible and proficient at several tasks and on different types of machinery. That was difficult to achieve under the piece-work system because moving a worker from their area of expertise to a machine on which they were not as skilled was akin to asking them to take a pay cut, Sullivan said.

“Now if we put someone on a machine where they are not as skilled they won’t get their pay impacted,” he said.

It’s good that they are making a move to drive more flexibility in their product, moving from isolated island where employees cranked out as much product as they could (to get paid more) to cellular production that is, hopefully, building to the customer demand, or “takt time.”

Here is a revisiting of Quint Studer’s blog on the subject of handling layoffs the right way, if you have to. Quint’s a great leadership thinker in the health care world and his ideas fit right in with the Toyota Way thinking, even though he never calls it lean. I highly recommend his book Hardwiring Excellence: Purpose, Worthwhile Work, Making a Difference. If you’re a manufacturing person, you should stretch yourself and read his book. The healthcare folks are stretching themselves to learn about manufacturing concepts. Leadership is leadership, and I think you can learn a lot from Quint.